It is never too late to start your investment journey, and if you’re a beginner, investing in exchange-traded funds (ETFs) can be a great choice. ETFs can be ideal for investors due to the instant diversification, low expense ratio, and wide variety of investment choices. They also have the potential to generate passive income along with capital appreciation. If passive income is your goal, consider JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI), Invesco S&P 500 High Dividend Low Volatility ETF (NYSEARCA:SPHD), and Global X SuperDividend ETF (NYSEARCA:SDIV). Here’s why they make a great addition to a beginner’s portfolio.
JPMorgan Equity Premium Income ETF (JEPI) generates its 7.24% yield primarily through writing out-of-the-money call options on the S&P 500.
JEPI holds $41B in assets and has delivered a 67.96% five-year return.
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) selects 50 stocks from the 75 highest-yielding S&P 500 companies with the lowest 12-month volatility.
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If you can handle some amount of risk, the JPMorgan Equity Premium Income ETF is a worthwhile choice. It aims to deliver steady income while providing exposure to some of the best blue-chip stocks with little volatility.
JEPI is known for a two-part strategy where it builds a portfolio of top stocks using a risk-adjusted system. Second, it writes out-of-the-money call options on the S&P 500 index and generates a premium. This premium allows it to maintain a high yield.
The fund has about $41 billion in assets under management, and while many may assume it leans on the high-dividend stocks, it generates passive income through the premium generated on options calls. It does hold defensive stocks, but the majority of its income stream is from writing out-of-the-money call options.
JEPI has a dividend yield of 7.24% and an expense ratio of 0.35%. It has managed to offer investors a bond-like return along with equity-like gains at low volatility.
JEPI invests in 123 stocks and has the highest allocation to the information technology sector (14.9%), followed by health care (12.4%) and industrials (11.8%). Its top holdings include Alphabet, Microsoft, AbbVie, Johnson & Johnson, Nvidia, and Amazon. The ETF has generated a cumulative 3-year return of 34.30% and a 5-year return of 67.96%.
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The Invesco S&P 500 High Div Low Volatility ETF is a fund designed for income investors. It tracks the S&P 500 Low Volatility High Dividend Index and invests in companies that have the potential to generate a high dividend yield.
It excludes high-yielding companies that are more volatile to avoid value traps. The fund identifies the 75 highest-yielding stocks in the index and then keeps 50 that have shown the lowest volatility in the past 12 months. SPHD pays monthly dividends and has a yield of 4.81%, generating steady passive income for investors.
The fund holds only 51 stocks and has an expense ratio of 0.30%. No stock has a weightage higher than 3%. It has the highest allocation in the real estate sector at 22.58%, followed by consumer staples at 16.78% and in the utility sector at 14.63%. It caps each sector at 25% of the portfolio and 10 stocks each.
The top 10 holdings include Pfizer Inc., Healthpeak Properties Inc., United Parcel Service, Verizon Communications, and Realty Income. As compared to other ETFs, SPHD sets itself apart by investing in real estate investment trusts (REITs). This allows you to own a part of the real estate and make the most of its upside.
SPHD has generated a 3-year return of 7.62% and a 5-year return of 12.15%.
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Global X SuperDividend ETF is another dividend ETF for beginners. It invests in the 50 highest-yielding dividend stocks in the world, weighs them equally, and generates passive income for you each month. SDIV tracks the performance of the Indxx SuperDividend U.S. Low Volatility Index. It has a dividend yield of 7.67% and an expense ratio of 0.45%.
It holds 50 stocks and includes many smaller companies whose share prices might be downward over time. However, the dividends have remained consistent. The fund invests heavily in the energy sector (21.7%), followed by utilities (20.6%) and REITs (17.6%). SDIV’s top 10 holdings include Global Ship, Omega Healthcare, Spire Inc., Northwestern Energy Group, and Evergy Inc.
This geographic diversification will spread the risk across different sectors and economies, reducing the reliance on a single market. Its global approach also allows investors to catch opportunities in sectors like energy and REITs. It has generated an average annualized return of 10.03% in five years.
The fund has gained 14.24% so far this year and is exchanging hands for $23.70. If your investment goal is to generate passive income each month, this ETF is worth considering. The fund will give you an opportunity to invest in the best dividend companies across the world at a low cost.
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